Asset Protection examples…

Asset Protection

Company Assets – Ring Fencing

Client A wished to remove a commercial property from his business as part of an asset protection planning exercise. The property was demerged away from the trading business and effectively ring fenced; this transaction was commercially driven. There was limited stamp duty exposure of 0.5% on this transaction and no other taxes.

Comment: Asset protection is fundamental consideration when entering or embarking on new ventures, it is key that the transactions to protect assets are commercial/investment driven.

Private Assets – Trusts

Client B wished to gift assets to his family members whilst retaining an element of control. The client was concerned about potential claims against the beneficiaries in the future by spouses, trustees in bankruptcy etc, therefore the gifts were made into a relevant trust which provided the desired protection.

Comment: In order to provide real protection the trust has to be properly constituted, the correct type of trust must be used and not be a sole beneficiary trust as the courts have looked through such trusts in recent cases.

Offshore and Domicile

X individual had a sizeable portfolio of residential investment properties. We restructured the tax affairs to transfer the properties into an offshore company without triggering any taxes, all with HMRC clearances (which in our mind are essential for comfort).

As the individual was non UK domiciled for inheritance tax purposes, the strategy avoid IHT on the portfolio immediately, hence saving £2.1M, whilst operationally not affecting how the business was operated.

In the Summer Budget 2015, the Chancellor announced changes to the pensions annual allowance that are likely to have an effect on NHS Pension Scheme members.

Measures to restrict pensions tax relief will be introduced from 6 April 2016 with the introduction of a tapered reduction of the annual allowance for individuals with income over £150,000. The key points that you should be aware of include:

The provisions reduce the annual allowance by £1 for every £2 that an individual’s adjusted net income exceeds £150,000, up to a maximum reduction of £30,000, resulting in only £10,000 of pensions annual allowance at income levels of £210,000 or above.

Further restrictions can apply subject to timing of the drawing of multiple pension funds.

As the NHS Pension Schemes are defined benefit schemes, individuals have to take into account the increased value of their pension over a period of time and not the superannuation paid into the NHS Pension Scheme. Doctors with relatively modest earnings may be caught under the new regime as the levels of income attributed to the calculations include amounts after employee pension contributions, the growth in the pension scheme, and all other income including investment income.

Doctors in both the 1995/2008 Scheme and the new 2015 Scheme will have even further complexities to their calculation than previously and it is important the pensions annual allowance position continues to be reviewed on an annual basis.

The use of estimated figures may be needed in order to ensure that individuals are made aware of any impending tax liabilities.

Threshold income – this is all earned and unearned income on which income tax is charged. It is at this point that relief for employees’ contributions is given. If the threshold income is more than £110,000 (ie £150,000 less the maximum annual allowance of £40,000), a second calculation will be required, adjusted income.

Adjusted income – this is threshold income plus adjustments for occupational personal pensions and includes the actual pension input amount for the year less any member contributions paid in the tax year.

The inclusion of a pension charge in the tax liability also 125,000 increases the taxpayer’s payments on account in the following tax year, although there is an option to request that the pension scheme pays the tax, subject to certain limits, conditions and deadline dates for the elections needed, (31 July 125,000 following the tax return deadline submission date).

This change in legislation will have a impact on large numbers of NHS Pension Scheme members. As a result, income tax planning is more important than ever. Consideration of the effects of your personal circumstances is necessary to ensure you plan accordingly.

The decision has been made. The aftermath has created panic and hysteria both politically and economically. The fall-out from Brexit will take some time to play itself out, however, what should businesses consider in these spectacularly uncertain times?

Short term, the vote for Brexit will have little immediate impact beyond increased volatility in the currency and stock markets given that an emergency Budget has been ruled out. The new PM Theresa May may well look to bolster the UK’s attraction as a business location as one of her first duties.

Longer term, the effects on some sectors will be more fundamental and unlikely to make it easier to do business within the EU. Clearly this will depend on the terms the UK can agree for Brexit, something which may not become clear for some time – possibly years. There may also be significant impacts on businesses with little direct EU trade.

In the meantime, uncertainty over the UK’s relationship with the EU will continue for months or years creating a drag on the economy as businesses and consumers take a wait and see approach to investments and major purchases.

As with all major economic shocks, businesses that remain engaged and adaptable will be best placed to trade profitably and make the most of the opportunities that they offer.

Some key issues to consider:

VAT – sales of goods to and from the UK become imports and exports (no acquisitions), which would need to clear customs and incur import charges – triggering a cash flow disadvantage (the delay between paying customs charges and entitlement to recover the input VAT). This can be mitigated by using deferment and customs warehousing arrangements.

Customs Duty – on Brexit the UK will no longer be part of the EU’s Customs Union. As a result, EU customs duties could apply to imports from the UK, making it less attractive for EU companies and consumers to source goods from UK companies. Similarly, the UK Government may extend the current UK customs duty tariff to imports from the EU, adding costs for UK companies reliant on raw material and finished goods from EU suppliers.

Repatriating profits and withholding taxes – withholding taxes on dividends from EU subsidiaries or payments of interest or royalties to or from companies located in the EU will be problematic. Currently, EU legislation allows subsidiary companies to pay dividends up to a UK parent company without the need to account for withholding tax. Similarly, companies often rely on the interest and royalties directive to make interest or royalty payments free from either UK or local withholding taxes. If the benefit of this legislation is withdrawn, companies would be relying on existing double taxation agreements in order to reduce or eliminate withholding tax rates.

While the majority small UK business will be directly unaffected, these are some of the changes certain businesses need to consider in order to find a path of least resistance in this volatile climate.

Should you require further information regarding the above, please contact us on +44 (0)114 275 62 92 or info@shipleystax.com.

HMRC has backtracked on hundreds of Accelerated Payment Notices (APN) after admitting defeat following an application for Judicial Review. This affects the notices it has issued to hundreds of taxpayers as a result of a Judicial Review lodged on their behalf. This is not the first time that HMRC has undertaken a withdrawal of APNs that they had previously issued.

APNs were challenged on a number of grounds including the argument that the Employee Benefit Trust arrangements under consideration were not ‘notifiable’ to HMRC, under the DOTAS regime. HMRC has now admitted that it did not have the right to issue the APNs in relation to these arrangements.

Shipleys Tax Planning partner, Shabeer Yousuf CTA, says “this case demonstrates, that a taxpayer in receipt of an APN should not automatically assume that HMRC has followed the correct processes and exercised its powers lawfully, the taxpayer should seek specialist advice.”